tv Nightly Business Report PBS June 16, 2014 7:00pm-7:31pm EDT
suzie guerin. >> greener pastures. metronic becomes the latest company to spend a lot of money for a better corporate tax rate buying covidion. >> global hotspots as investors watch what's happening in iraq. there are a number of high risk areas where american energy companies operate keeping oil prices high. and another recall. gm calls back more than 3 million cars, again related to an ignition switch problem. all that tonight for monday june 16th. >> good evening, everyone, three big issues dominated trading on wall street today. more violence and political turmoil in iraq. and also positive data ahead of the federal reserve meeting this week.
stocks notched up slightly and helped by all those mergers and the fact that oil prices held steady at $106 a barrel, despite concerns about fighting in iraq. here's how things looked at the closing bell. the s&p 500 added one points. it was metronics buyout of rival medical device maker covidion that had wall street buzzing today. shares shot up more than 20% on the takeover news while shares were down 1%. what's behind the deal and whether there will be more. >> metronics acquisition of covidion is part of two trends sweeping the industry. the deal will enable metronics to reincorporate on the emerald
isle and benefit from the lower tax rate there. a strategy employed by many health care companies over recent years. including pfizer, in its failed attempt to bias electra zeneca. >> the rational is one of simply to secure a lower corporate tax rate. you generate higher level of earnings power, and any future deals with a lower tax rate if you look back into u.s. companies that have higher tax rates, those deals become much more creative. >> the deal will allow metronic to store cash overseas. it's $13illion which it would have to pay taxes if it was returned to the united states. today's deal may signal more to come as they respond to increasing pricing pressure from hospitals. already this year. zimmer bought biomed.
>> further consolidation in the industry is formally in play. there's going to be a lot of speculation, i think with this transaction, it basically says that no deal is too big to be executed if there's a strategic rationale from a fundamental business perspective. >> one target analysts say is smith and nephew. for nightly business report, i'm meg terrell. >> ireland may be cool and green, but it's low tax rate and business friendly climate makes it red-hot these days, so it doesn't take a help rah con's magic to figure that shire could be a suitor's target. shire has hired citigroup as a strategic adviser as it braces for likely takeover offers. that sent shares of shire
raising 6.5% today. we have another acquisition to tell you about, a $5.5 billion deal between level 3 communications this is the internet service carrier and tw telecom. shares fell 4%, but tw rose more than 7%. >> yet another big acquisition now facing a big hurdle. a few weeks ago, general electric bid $17 billion for the energy business of the french engineering giant all star. that offer ran into a lot of resistance from the french government on concerns of noneuropean ownership and possibly lost jobs in france. the german engineering giant siemens teaming up with japan's mitsubishi has bid more than $5 billion, breaking up its energy unit and becoming the first real competitor now that ge bid. >> let's break down some of today's deal news with david favor. we don't know where to begin.
so many deals you've been following all of them. it seems like there's a theme, some being done for tax reasons, metronics, some done for strategic reasons. why are we seeing all of these now? >> we're seeing a row bust merger and acquisition market. broadly speaking, things like ceo confidence, rising stock prices, the ability to negotiate a merger agreement, you have not that much volatility in the stock market. then you get to things that are driving them as you say, tax inversions, that's what we call when a u.s. company says okay we're buying an irish company and we're going to become an irish taxpayer. lower our rate, and more importantly, generate a lot of cash outside the u.s. that we can bring back without having to pay taxes on it. the inversions have taken place in the pharmaceutical sector in
health care alacovidion. they got an address in ireland, but they're not irish companies, they're u.s. companies, but doing that because they maintain that the u.s. tax regime right now especially as it treats foreign profits is it not competitive. they're looking to get out when they can. pfizer and astrazeneca is the largest example. that did not happen. they would lower the rate and allow them to bring money back without having to pay taxes on it. >> what's the motivation? >> not that strategy doesn't play a role into all of these. metronic will tell you we're doing this deal for strategic reasons. in the case of level 3, it's not for taxes, obviously, it's not an inversion. in some ways, another one of these deals where you're responding to a certain extent a comcast plan to buy time warner cable. that is largely about consumers, but also business customers there. this tieup is about the business
customer, about 36,000 buildings that will now be wired into and offer service to business customers and what they can do in terms of synergy, there's that word, and helping them raise the top line, meaning revenue growth as well. you. >> just talked about time warner cable, and today the new york state started hearing public comment on the time warner comcast $70 billion deal. give us an update on where you think that whole thing's going. >> it's going to take a while. they originally went -- and comcast, of course, the parent company, they hoped they would close it before the end of this year, many people are dubious on that, these things can take a long time, my guess is it doesn't close. they don't get all the approvals they need, until early next year. that being said, there are very few people who don't think the zeal will still get approval. but we see these kinds of regulatory concerns or in country concerns in the case of ge and now some -- you just don't know. including by the way, the
chinese antitrust authorities. that plays a big role as well. certainly stretches these deals out for a long time. and you don't know if you're going to get the antitrust approvals you need. >> thank you so much for coming by and talking to us. appreciate it. >> more now on the crisis in iraq, another city in the western part of that nation has been seized by islamic fighters. just as baghdad works to increase the oil production. despite the continued threat of supply disruptions, oil futures were flat today with west texas down a penny. michelle caruso cabrera is on the ground in iraq. >> the islamic state in iraq were isis taking another major town in northern iraq today. this time talafar, the town was the scene of heavy fighting when the u.s. invaded in 2003, and now it belongs to the al qaeda
inspired group. in response to these mill dents, iraqis have been rallying for days now. recruited by clerics to fight against the militants who are among the sunni secretary. the add hoc militias -- the iraqi air force joining in from the fight from above. this video is released this morning. it reportedly shows an iraqi air force jet successfully attacking a building. this shows an iraqi helicopter scoring a direct hit. it's difficult to say what these targets are and how they're related to the sunni fighters, northern iraq appears to have been transformed into a killing field. despite the attacks from the air. iraqi forces have not been able to turn the tide of fighting, one of the reasons the price of oil hovers near highs for the year. for fear that it will become more widespread. even though there haven't been major disruptions from
production. ben lando is the editor and chief of the iraq oil report. >> production in the south untouched at this point? still going full tilt? >> exactly. >> it's quite possible that iraq's production actually increases by the end of the year, because of major new investments. >> iraq has hired the largest oil companies in the world to work with their own iraqi engineers to produce more and more oil from some of the biggest oilfields in the world. the massive 20 year contracts are having results. >> while the u.s. is less dependent on petroleum, american ships arrived in the persian gulf over the weekend just in case they're called in to provide air support many the aircraft carrier along with the guided missile cruiser is now within striking distance if needed. john kerry said in an interview today the president is still evaluating options.
he wouldn't rule out dealing with iran. >> we're open to discussions if there's something constructive that can be contributed by iran, if iran is prepared to do something that is going to disrespect the integrity of iraq. >> one of the long time enemies, it just goes to show how the situation in iraq has turned geopolitics on its head. >> for nightly business report, northern iraq. >> while the turmoil in iraq has boosted global oil prices over the past week, worries about supply disruptions, the middle east isn't the only global hotspot that energy experts are keeping a close watch over. morgan brennen explains. >> the escalating crisis in iraq, comes at a time when other producers are suffering setbacks of their own. several african countries struggle wh local security threats and tensions mount in
eastern europe. industry experts say it's not surprising these regions rich with resources also foster conflict. >> very rapid changes. regional power struggles. and so we see the consequences of our springs. we see the consequences of vacuums being opened up in syria. other forces to regroup and take interest in iraq. bad interest in iraq. >> by itself, interruption in iraq wouldn't steeply impact global supplies. it would lead to major decline. >> libya's output tumbled from the year before in 2013. this year, production has ground to a near halt. nigeria, which had problems in 2008 and 2009 is experiencing a massive crime wave that's caused
several companies to close wells. then there's eastern europe, where russia is cutting off natural gas supplies to ukraine, after two countries failed to strike agreement on payment. >> if the crisis between ukraine and russia escalates. there's going to be another anxiety premium on the world's energy markets. >> there's one country that could help diversify and stabilize the energy market, the united states. >> the u.s. is the number one energy producer in the world, just succeeded russia, it produces 22 million barrels, oil equivalent on a daily basis. >> experts say the u.s. will become increasingly important to global supplies. a factor sure to fuel the base about whether to lift the ban on oil and natural gas exports. for nightly business report, i'm morgan brennan. >> our market pro tonight says iraq doesn't seem to be excessively rattling the markets, but a sustainable surge in oil prices or a major
escalation in military action could shake investors, en if it's only a short lived reaction. chief strategist for charles swab. >> i assume that based on that sort of prefacing remark, you think now is not the time for investors not to do anything with respect to world events? >> probably not in reaction to geo political veents. we've been a little cautious in the near term. not the least being sentiment has gotten frothy. as you noted in the intro, so far the market is handling this crude, only up a few bucks what the average has been in the arab spring in 2011. a sustainable impact on oil prices is the kind of thing that could potentially tip the economy into a recession and you're talking about very different animals than we're
facing now. when you have sentiment elevated it doesn't take a lot. at least today, the markets seem to be handling pretty well. >> from your perspective of the market today, you heard at the top of the program, we talked about three issues, iraq, all this merger activity. which is really most crucial for american investors? >> the fed policy is extremely crucial, however, i'm not sure we're going to get much out of the meeting this week. i would expect the fed to taper another 10 billion as they've been doing at every meeting. i think it's probably the economy in the near term that matters more, clearly we're seeing acceleration off the first quarter, weak pace of growth, the numbers out today are quite strong, the housing market index. i think you're moving back into a significant pace of growth relative to what we've seen in
the last quarter or two. that's probably enough to keep earnings growth accelerating. >> we spoke with david favor about the flurry of mna activity, both across border and domestically, what if anything does that tell you about the health of the market, the froth in the market. >> it tells you that animal spirits are reviving, and you're seeing a lot of the lending numbers are picking up a lot of other leading indicators of capital spending. i think that's good news for the economy. the debate is whether we're getting to some froth in mna activity to suggest the end is new. i think it's too often to suggest that. often it can mark the beginning of the end, often times the span between those two can be quite long. 1998 was a boom year for mna activity, and the market didn't peak. in dollar terms or relative to market cap, we are not looking at the kind of peaks that we saw
in either 2007 or heading into 2000. i don't think we're there yet, i think it's a good side of animal spirits. >> given that good sign of animal spirits. any advice you have for our individual investors in terms of stocks, bonds or sectors that they should be focusing on as we go through this next phase? >> we're a little cautious in the near term, in a seasonally difficult period, not to mention midyear tendencies to give you a pull back. you may want to keep your cards close to the vest. we believe we're going to come out of the spine and the cyclical exposure is the place to be that you don't -- at least not beyond the short term, you don't want to hunker down in the defensive areas, we think cyclicals will be the winners in the later part of the year. >> great to see you. >> still ahead on the program, yet another big recall from general motors related to its ignition switches. details ahead.
general motor announced another round of recalls today, more than 3 million vehicles are being called back to fix an ignition -- a key ignition problem. the engineer that designed these switches and also designed the switches on the 6 million cars recalled earlier this year, he has since been fired. with this latest expense, the automaker has been forced to increase the charge it will take in the current quarter. now, $700 million. that's up from $400 million previously. for a full list of the cars affected in the latest recall, go to our website. a real set back for argentina, and it has nothing to do with the world cup soccer tournament. the u.s. supreme court rejected argentina's appeal.
the ruling means argentina has to pay back more than a billion dollars to creditors and the news sent argentine stocks down about 10%. today alone. but over the past year, the index has more than doubled. ali babb about a, which is getting ready to sell stock in the u.s. later this summer, offered potential investors some new details about itself. an updated filing, ahead of this ipo. the chinese internet retailer released sales figures for two of its main shopping sites, showing growth has slowed and profit margins have declined. that wasn't good for yahoo investors. yahoo owns about a quarter of ali babba. wells fargo may be on its way to become the biggest bank ever. and that is where we begin tonight's market focus. shares are up almost 13% this year, and that surge has given it a greater market value than such rivals as jp morgan chase,
bank of america and city. its market value is $10 billion less says the wall street journal than citi's all time valuation record of $282 billion set back in 2001. today shares of wells were off 1 1/2% to 51.09. some at&t wireless accounts have been breached in what the company says was an inside job. employees of one of at&t's service providers stole information from customers. including social security numbers and call records. the number of customers affected have not been disclosed. shares were off a fraction today. a glitch in target's checkout system caused lines and delays at its stores, but the company says it wasn't due to a security issue. the technical problem comes as the retailer continues to deal with the fallout from a massive prechristmas security breach that was compromising the personal information of millions of customers. despite that, target shares were up slightly today, to $57.74.
and hill shire says its board is no longer recommending the company's purchase of pinnacle foods. it will back away from the pending merger saying the offer from tyson foods to take over hillshire is a much better offer for its investors. coming up, what the international monetary fund is doing that it's never done before. the international monetary fund cut its growth forecast for the u.s. economy for the rest of this year, to a rate of just 2%. that's down from 2.8%. in a real surprise, it suggested
that the u.s. start paying its lowest earning workers higher wages. steve liesman has the story. >> reporter: the international monetary fund taking on a step today, in its annual review of the u.s. economy, a supporter of raising the minimum wage saying it would have an impact of reducing poverty. >> you have 15 million people living below poverty level, many of whom are actually working people, not many of whom are just not doing anything. that's why we're recommending it. as to give you a number, is it 10.10? this is something that needs to be decided by the legislators clearly. >> the imf office steers clear of economic issues, especially the u.s., which is the fund's biggest shareholder. the u.s. has the third lowest minimum wage among industrialized countries. hiking it could help the
millions of americans out of poverty, even though it could reduce total jobs. >> certainly there's an employment tradeoff, the congressional budget office recently estimated the loss of jobs at half a billion. they know that 16 million people who are currently in low income status. >> on overall growth, the ims clashed down from gdp from 2.8%. if you continue to forecast a second half rebound and strong growth of 3% next year. it also expressed concern about significant markets, because there's too much certainty on interest rates from the fed and the market. still, the imf said the fed could keep the zero interest rate policy in place beyond 2015. full employment in the u.s., not until 2017 says the imf. starbucks may be better
known for its high energy drinks than higher education. they're teaming up with arizona state university to build a better educated workforce at its stores. >> reporter: there are jokes about barista's with bachelor's degrees. people who went to college only to work at starbucks. most of its employees don't have bachelor's degrees. and now the company plans to help them get one many. >> this is one of the most, if not the most important announcement we've made in our history about. >> the chairman and ceo announced a partnership with arizona state's online program, which offers 40 different bachelor's degrees. starbucks employees who work at least 20 hours a week, can get full tuition reimbursement for junior and senior year studying online. tammy lopez wants a business degree. >> i always saw myself finishing
school, but i just didn't know when, it's financially difficult. >> how much is this costing starbucks? the company isn't saying, but the average unit online is about $500. that's $160 million if starbucks is paying full retail. >> i accumulated more than $10,000 in debt. >> how many workers have had to put education on hold due to personal or financial reasons. and schultz told them this new program is no pr stun the. >> we have been taught constantly as business people that the primary role for a public company is to make money. and i'm here to tell you, i don't believe that's true. >> reporter: employee reaction bordered on the adoration steve jobs used to engender. >> i can tell you i've always been committed to only one man in my life, and that's you. >> reporter: the program will only be open to those who qualify for asu's online admission, and who don't already
have bachelor's degrees. what do employees owe starbucks after graduating? apparently nothing. >> you can leave. we don't want you to leave. >> reporter: the program is good for his company, good for the country and he hopes others will follow. for nightly business report, jane wells, los angeles. >> great corporate citizen. and let's hope other companies follow. that's nightly business report for tonight. thanks for watching. >> have a great evening, we'll see you tomorrow.
>> this is "bbc world news." >> funding of this presentation is made possible by the freeman foundation. newman's own foundation, giving all profits to charity and pursuing the common good for over 30 years kovler foundation. charles schwab, union bank and united health care. >> at union bank, our relationship managers work hard to know your business, offering specialized solutions and capital to help meet your growth objectives. we offer expertise and tailored solutions for small businesses and major corporations. what can we do for you? >> when i was pregnant, i got more advice than i knew what to do with.